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No second bite of the cherry where claim determined in arbitration

A recent case (Swallowfalls Limited v Monaco Yachting & Technologies S.A.M. and Mr Peter Landers Jr) in the Commercial Court has confirmed that there can be no second bite of the cherry in court proceedings where a claim has already been determined in arbitration.

The facts

Swallowfalls Limited ("Swallowfalls") commissioned a 240ft luxury yacht for the millionaire financier, Nathaniel Rothschild, to be built by Monaco Yachting & Technologies S.A.M. ("MYT"), pursuant to a construction agreement. When MYT experienced difficulties in paying its subcontractors, Swallowfalls also made a loan to MYT of upwards of €33 million to support the construction. Mr Peter Landers, as chairman and managing director of MYT, provided a personal guarantee of MYT's obligations under the loan agreement.

Matters proceeded unhappily and Swallowfalls, dissatisfied with MYT's performance, notified MYT that it was in material breach of the construction and loan agreements. MYT responded by commencing arbitration under the construction agreement, arguing that Swallowfalls was itself in breach of its obligations, in particular the failure to countersign stage certificates to enable MYT to repay the loan.

Subsequently, Swallowfalls commenced proceedings in the Commercial Court, claiming that the loan was immediately due and payable in the sum of €15,699,864.21. MYT and Mr Landers counterclaimed in respect of Swallowfalls' alleged breaches of the construction agreement that were the basis of the arbitration, seeking a set-off against the sums claimed under the loan agreement and guarantee.

MYT successfully applied to stay Swallowfalls's claim in the Commercial Court pending the outcome of the arbitration, since the breaches which were the subject of MYT's counterclaim in the Commercial Court were already before the arbitration tribunal.

Matters proceeded to arbitration and at an early stage Swallowfalls applied for security for costs against MYT. MYT was ordered to provide security of £200,000 or furnish the tribunal with its accounts and to agree upon an independent accounting expert. MYT failed to comply with either option without satisfactory explanation. As a result, the arbitration claim was subsequently dismissed without any determination being made on the merits of the parties' positions.

The stay of Swallowfalls's claim in the Commercial Court was lifted following the determination of the arbitration and Swallowfalls sought summary judgment on its claim. MYT sought to raise in defence its counterclaim arguments that had already been raised, and determined, in the arbitration.

The judgment

Mr Justice Knowles CBE decided that MYT's attempt to reignite its counterclaim arguments in the Commercial Court proceedings amounted to an abuse of process, stating: "I am entirely satisfied that to allow the defendants…to traverse, in these proceedings, the subject matter of the arbitration, would be an abuse". It was at MYT's instigation that certain matters be submitted for decision by arbitration and it was consequently given what it asked for, save that the arbitration was not concluded as it had hoped due to its own actions in failing to comply with the final and peremptory order in the arbitration. It was only fair that MYT should comply with the rules to which it had submitted in agreeing to arbitration.

Mr Justice Knowles CBE concluded that to litigate the subject matter of the arbitration now through the counterclaim of MYT would be to "vex" Swallowfalls for a second time with those allegations and would consequently be "offensive to justice".

This case does not make any new law but represents a useful reminder of the important principle that an arbitral award will be final and binding, unless otherwise agreed by the parties, and as such a claim that has been so determined through arbitration cannot be re-litigated in the courts. This is the case even where the arbitration tribunal has not considered the merits of the claim. It is not open to parties to fail to comply with a process to which they have submitted and then seek a second chance to put forward the same position before the courts on the basis that the opposing party has not had to meet the claims against it yet. It also serves as a warning to parties inclined to adopt a recalcitrant approach of the power of an arbitral tribunal to dismiss a claim on an interim matter such as security for costs. Therefore, caution should be exercised by parties who are unhappy with this possibility when submitting to arbitration without amendment to the principles contained within the Arbitration Act 1996.

Compare jurisdictions:Litigation: Enforcement of Foreign Judgments

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